Hot Option Plays: Watch Support Midday

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Cusick’s Corner 02-25-2013
After this run up that we have had so far this year, markets are forming a tight consolidation, helping some to catch their breath and it’s potentially getting others to join in. Right now the Dow Industrials, DJX, S&Ps, SPX, and NASDAQ, NDX, are all in the lower end of a consolidation. The S&Ps are turning a little sharper but we saw similar action in the end of December which held support then resumed to the upside. I will be watching 1490/1500 on the S&Ps, 13800 on the Dow and 2720 on the NDX. With all the headlines, these levels will be important to watch so that we can help control our emotions. See you After Hours.

Stock market averages followed overseas markets higher early Monday, but the rally fizzled and gains have been lost through midday. With no domestic economic news scheduled until home sales and consumer confidence tomorrow morning, some of the early focus is on overseas markets. While equity markets are steady, the euro has taken a decided turn for the worse against the dollar amid increasing uncertainty surrounding elections in Italy. The concern is that recent austerity measures could be thwarted based on the outcome of the election. Elsewhere, crude oil is down 22 cents to $92.91 and gold gained $16.2 to $1589. The Dow Jones Industrial Average is now down 53 points and off 134 points from its best levels. The NASDAQ dropped 3.3. CBOE Volatility Index (.VIX) is up 1.14 to 15.31. Options trading is active today and there’s more put than call activity so far. 3.4 million calls and 3.5 million puts traded through 11:30am ET.

Bullish Flow
Legg Mason (NYSE:LM) is up 42 cents to $28.55 in active trading of 1.5 million shares and options action is picking up in the Baltimore, MD asset management company. The top trade is a 9500-lot of Jan 35 calls for $1 per contract. An investor bought the calls, according to a source on the exchange floor, and appears to be opening a new position. 10,000 now traded against 319 in open interest. Jan 25 calls, Jan 23 puts and Mar 27 puts are the next most actives in LM today and implied volatility moved up 7 percent to 29, but with no obvious news items to explain the heightened activity in the name.

Barnes and Noble (NYSE:BKS) jumped up $1.79 to $15.30 in heavy trading of 4.5 million shares on reports the company is possibly looking to sell its retail business. Options volume on the bookseller is running 7X the daily average. 16,000 calls and 8,000 puts traded in the name so far. March 15 calls are the most active. 7,764 traded and implied volatility in BKS options is moving up 8 percent to 59.

Bearish Flow
Kimberly Clark (NYSE:KMB) is up 63 cents to $95.13, new 52-week highs, in active trading of 2.1 million shares. It’s not clear what is motivating the relative strength, as there are no obvious headlines on the Dallas, TX healthcare company. Yet, options order flow seems to reflect some cautious sentiment in KMB today. Total volume is running 2X the daily average. 18,000 puts and 6,500 calls traded in the name, a ratio of almost three-to-one. April 80 puts, which are almost 16 percent out-of-the-money and expiring in 53 days, are the most active. 4,170 changed hands. July 85, Apr 87.5, and July 95 puts are also busy as are Apr 97.5 calls. 30-day implied volatility is up 5 percent to 14.5.

Tyson Foods (NYSE:TSN) is off 9 cents to $23.71 and put options on the poultry company are seeing interest today. Total options volume is very lopsided, as 7,150 puts and 165 calls traded on the stock. March 23 puts, which are 3 percent out-of-the-money and expiring in less than three weeks, are the most active. 5,849 traded against 479 in open interest. Apr 23 and 24 puts are also seeing interest and implied volatility in TSN options is up 14.5 percent to 23.5. There are no obvious headlines to explain the increased put activity in the name. The company is presenting at an Agribusiness conference tomorrow.

Unusual Volume
Sandridge Energy (NYSE:SD) options volume is running 4X the (22-day) average, with 136,000 contracts traded and put volume accounting for 53 percent of the volume.

Sprint (NYSE:S) options volume is 2.5X, the average daily, with 54,000 contracts traded and call volume representing 59 percent of the activity.

Lowe’s (NYSE:LOW) options volume is running 2.5X the average daily, with 42,000 contracts traded and call volume accounting for 64 percent of the activity.

Increasing options activity is also being seen in Legg Mason (NYSE:LM), Radian (NYSE:RDN), and Kimberly Clark (NYSE:KMB).

Implied Volatility Mover
Implied volatility in the options on Lowe’s (NYSE:LOW) is moving lower after the home improvement retailer delivered quarterly earnings and revenues that beat Street estimates. However, the company offered only in-line guidance for the next quarter and shares are drifting down 19 cents to $37.48. Options volume on the stock is running 3X the daily average. 28,000 calls and 16,000 puts so far. March 40 and 41 calls are the most active and 30-day implied volatility in LOW options dropped 30 percent to 26.

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